Nasdaq 100 Challenges Record High as Retail Sales and Jobless Claims Surprise

Also, 30-year T-bond, gold, natural gas and Japanese yen futures

1. Nasdaq 100 E-mini futures (/NQ): +0.18% 
2. 30-year T-bond futures (/ZB): +0.28% 
3. Gold futures (/GC): -1.15% 
4. Natural gas futures (/NG): +1.04% 
5. Japanese yen futures (/6J): -0.44% 

Traders are taking this morning’s US economic data releases as good news for risk appetite. Softer initial and continuing weekly jobless claims alongside better than expected retail sales for June (even adjusted for inflation) are lending credibility to the idea that the US economy will avoid recession. Strong breadth in equities, led by small- and mid-cap stocks, underscores the optimism. The US dollar is bouncing back while long-end US yields drop, all while precious metals dip. In sum, it’s a “buy America” kind of day. 

Nasdaq futures (/NQU5) rose in early trading, supported by positive earnings headlines and labor market data. United Airlines (UAL) rose over 4% after reporting a beat, and PepsiCo (PEP) gained 6% on its own set of positive results. Archer-Daniels-Midland (ADM) fell after President Donald Trump said Coca-Cola (KO) will use cane sugar in their drinks instead of high fructose corn syrup. Taiwan Semiconductor Manufacturing (TSM) rose over 2% after it beat second-quarter estimates.  

After a day of volatility in the bond market, prices on the longer end of the curve are pacing higher, with 30-year T-bond futures (/ZBU5) rising about 0.31% in early trading. This morning’s labor market data pushed yields a bit lower. The 30-year yield is trading below the 5% mark that it crossed earlier this week for the first time since early June. While the Federal Reserve’s independence seems safe for now, strong economic data has pushed back on dovish calls for rate cut bets later this year.  

Gold prices (/GCQ5) are moving lower after this morning’s data cast doubt on the possibility of rate cuts sooner rather than later. The metal is trading around the 3,330 level and below its 21-day exponential moving average (EMA). We’re heading toward the bottom of the June range, and a test of the 3,300 level could provide some clues on how firm bulls want to stand in this market. Some strength in the dollar is also weighing on bullion prices. 

Natural gas (NGQ5) rose over 1% to the highest level since June 30, extending a rally that came from a multi-month bottom that occurred earlier this month. The 15% rally since the lows from last week has brought prices near a trendline that was broken from the April lows. The Energy Information Administration (EIA) will report inventory data for gas storage later today. Last year for this period, the EIA reported an 18 billion cubic feet (bcf) build, but analysts are looking for a number nearer to 50 bcf.  

A storm system is affecting the Gulf Coast currently, but so far there have been few reported disruptions to export facilities. However, it’s possible the operators may have front-loaded some export capacity ahead of the storm to hedge against the possibility of a stronger system impeding operations, although if so, it's likely to only have a small impact on today’s EIA figures.  

Natural gas bulls are also getting some support from weather modeling, with forecast models seeing improving chances for hotter-than-average temperatures across much of the United States over the next two weeks.  

Relaxed concerns around Fed Chair Jerome Powell’s job security, coupled with strong US economic data, are proving beneficial for the US dollar. It’s gaining strength because Fed rate cut odds for July have been zeroed out, while odds of a September cut are now at their lowest point of the cycle. With elections looming over the weekend in Japan, the yen (/6JU5) remains weak. Expectations are for the voting to weaken LDP rule, which could ultimately lead to tax reform that erodes the country’s already-shaky fiscal standing. Whenever developed economy currencies weaken when interest rates rise, it’s typically the market that sends a warning sign about policy in such fashion. 

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater